Gold posts biggest weekly loss amid inflation fears; global stocks fall

Gold prices rose at the close of last week's trading but posted their biggest weekly loss in six weeks, as escalating tensions between the United States and Iran pushed energy prices higher, raising inflation fears and strengthening expectations of a U.S. interest rate hike.

Spot gold rose 1% to $4,011.29 per ounce. Prices had touched their lowest level since June 30 earlier in the session and fell about 2.6% since the start of the week. U.S. gold futures for August delivery settled up 0.7% at $4,018.80.

The U.S. dollar rose for a second straight session, making gold more expensive for foreign buyers. Chris Gaffney, president of global markets at EverBank, said, "The main reasons for the decline in gold prices are the strength of the U.S. dollar and growing fears of global inflation, which have led to higher global interest rates."

Gold has fallen about 25% since the start of the U.S. war with Iran in late February, affected by expectations that war-induced inflation will keep interest rates higher for longer.

Although gold is seen as a hedge against inflation, higher interest rates typically weigh on this non-yielding metal. Gaffney said, "Recent data has shown a decrease in the probability of an interest rate hike at the next Federal Open Market Committee meeting, but global interest rates are still rising, and the recent surge in oil prices may push the Federal Reserve to take a more hawkish stance on U.S. monetary policy."

Traders see a 58% probability of a U.S. interest rate hike in September. Federal Reserve Vice Chair Philip Jefferson indicated on Thursday that he would be open to raising interest rates if inflation does not improve soon.

However, Goldman Sachs said in a note, "Gold's share in private investment portfolios remains low, and recent geopolitical developments, including Iran and broader tensions, could accelerate investment diversification to include retail investors alongside central banks."

In other precious metals markets, spot silver rose 1% to $56.06, platinum fell 1.4% to $1,595.64, while palladium held steady at $1,249.63. All three metals are heading for weekly losses.

Global stocks fell as the semiconductor sector collapsed while oil prices rose amid escalating tensions in the Middle East. Global stock indexes declined on Friday, with shares of major chipmakers falling for a third straight day as investors scaled back their bets on artificial intelligence, coinciding with China's launch of the 'Moonshot' project which released a massive AI system.

In the disputed Strait of Hormuz, where renewed conflict cut off global energy supplies again, U.S. Marines boarded an oil tanker, and another ship was reported hit by a projectile. On the third straight day of losses, the Philadelphia Semiconductor Index ended Friday's trading down 1.6%, thus 20% below its record closing high set on June 22, after having earlier fallen 23.5% from that level.

Adding to existing concerns about high valuations and the sustainability of AI capital expenditure growth, Chinese AI startup Moonshot unveiled its Kemi K3 system, which it described as the world's largest open-weight AI system, delivering performance close to leading U.S. model Anthropic.

Wall Street indexes recovered from their session lows early in the day, with some investors feeling 'this is the right time to at least start covering some of the recent heavy short positions, or do some buying,' according to Michael James, managing director and equity sales trader at Rosenblatt Securities. However, he described the market as 'highly emotional and sentiment-driven.' He added, 'We are still down for the day, and that won't boost confidence on Monday morning. It's very messy right now,' he said. The Dow Jones Industrial Average fell 406.55 points, or 0.77%, to 52,146.42; the S&P 500 lost 76.08 points, or 1.01%, to 7,457.69; and the Nasdaq Composite dropped 361.70 points, or 1.40%, to 25,520.24. For the week, the S&P 500 ended down 1.55%, the tech-heavy Nasdaq fell 2.9%, and the Dow lost 0.93%.

The MSCI global stock index fell 13.17 points, or 1.17%, to 1,108.52 during the day. Earlier, Europe's STOXX 600 index closed down 0.34%. Losses were steeper in Asia, where the broader MSCI index of Asia-Pacific shares excluding Japan fell 2.7%, while Japan's Nikkei dropped 4%, putting it 12% below its recent peak.